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Brussels has admitted the world’s first carbon border tax was “too broad” and “too clumsy” as it set out plans to close loopholes before it comes into force next month.
The Carbon Border Adjustment Mechanism (CBAM) aims to level the playing field between EU companies paying high carbon and energy prices and cheaper, ‘dirtier’ products imported from countries with no emissions costs.
The measure, which includes imports into the EU of steel, aluminium, cement, fertilisers, electricity and hydrogen, has drawn strong opposition from the bloc’s main trading partners including China, India and Brazil.
The US has also criticized the tariff, despite the fact that imports covered by the CBAM account for less than 1 percent of total trade with the EU.
The European Commission announced several revisions to the measure on Wednesday before it comes into effect on January 1. Importers have had to submit paperwork for their emissions this year as part of a practice round, but have not yet had to pay any fees.
Wopke Hoekstra, the EU’s climate commissioner, said the commission concluded in the testing phase that “our system is too broad, too clumsy, had too many loopholes” and was akin to “a good cheese with a few holes in it.”
To close the gaps, the commission said it would extend the tax to downstream products such as washing machines, industrial radiators and garden tools.
The additional products would generate approximately 20 to 25 percent of CBAM’s total expected revenue. A portion of the revenue generated goes to a fund that compensates exporters who try to compete in other markets with lower-cost, higher-carbon producers.
Such a subsidy scheme was not originally proposed as part of CBAM when it was first announced in 2019, due to opposition from the commission’s Trade Directorate, which argued that it would not comply with World Trade Organization rules.
But Hoekstra said the fund was “truly compatible” with WTO rules and would only be a two-year temporary measure until the bloc’s emissions trading system was overhauled in a way that would support exporters.
The commission has also said it will tackle “abusive practices” by forcing importers to use discouragingly high defaults if they cannot provide evidence of actual emissions.
Hoekstra said that despite several letters from Ukraine asking for an exemption from CBAM given the destruction of its energy infrastructure and difficult economic situation, Brussels believed CBAM’s impact on the war-torn country was “nowhere near what many feared.”
Exports of goods affected by CBAM represent about 2 percent of Ukraine’s GDP, the committee said, and came from production with “relatively low emissions intensity.”
